Student subsidies of classmates’ tuition add to anger over rising college costs

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A sophomore at U.C. Berkeley, June Ahn comes from a family whose income is just enough to put her past the reach of much financial aid. So, like many students, Ahn is using loans to underwrite her education.

As an international student, Berkeley freshman Howard Chiao pays two and a half times more than in-state students, and is not eligible for university financial aid. In a cycle of cross-subsidization at U.S. universities and colleges, international students subsidize domestic ones. “It’s really a huge burden for us,” Chiao said. (Photo by Michael Short/California Watch)

To make matters worse, she comes from Washington, not California, so she pays two and a half times as much as in-state tuition. And she pays it even though, as an underclassman, she’s still taking large-enrollment classes that cost the university much less to provide than smaller, upperclass courses and seminars.

It gives Ahn little consolation to know that some of her money is likely being used to subsidize the educations of her lower-income, in-state, and junior and senior classmates.

“I’m not in a better financial position than any of the students I would be helping to subsidize,” said Ahn, whose anticipated major—political science—also is cheaper for the university to provide than majors for science and engineering students who, at U.C. Berkeley, are charged the same as she is. “But I have an extra almost $10,000 that I still need to pay.”

As a new academic year begins, growing scrutiny of record tuition and fees is drawing new attention to the longstanding cycle of subsidies like these on which American colleges and universities depend—but which they would rather not discuss.

Now activists and legislators are pushing back against the Robin Hood-style use of some students’ tuition revenues to pay for other students’ financial aid. They’re pressing for different prices for different subjects based on the actual cost of instruction, and, in some states, even proposing an end to a perk under which taxpayers subsidize tuition for faculty children.

Still, many families and students seem as much in the dark about these practices as airline passengers who pay different fares for similar seats on the same flight to the same place.

“If you combine general financial illiteracy with the opaque nature of college financing, it’s surprising that anybody really knows what’s going on,” said Andrew Gillen, senior researcher at the American Council of Trustees and Alumni.

For universities, there’s an advantage in this, Gillen said: “If somebody doesn’t know he’s paying more than the kid next to him, he doesn’t get upset.”

But if that student is paying full or nearly full tuition, higher-education experts said, it’s likely some of the money is going to lower-income classmates who aren’t.

“Schools have become more aggressive in this income-redistribution aspect of higher education,” said Richard Vedder, director of the Center for College Affordability and Productivity in Washington, D.C. “There’s an economic-theory dimension to this, which is that there’s always a small class of students who have a lot of money, and the income-maximizing enrollment manager wants to zap it to these kids.”

At least 15 states have explicit policies under which some of the revenue from students who pay tuition at public universities goes to others who can’t cover the full cost, according to the State Higher Education Executive Officers, or SHEEO. In Arizona, for example, public universities channel about a quarter of tuition revenue into discounts, grants, and other forms of financial aid. In North Carolina, at least 25 percent of money generated by any increase in tuition goes to such subsidies, while in California it is one-third of each tuition increase.

Critics say this penalizes not only full-tuition-paying, high-income parents and their students, but also middle-class families already being squeezed by escalating costs. In June, the Iowa Board of Regents ordered the practice to end in that state within five years. There, some $144 million a year in financial aid is redistributed to low-income students—as well as high-achievers who don’t qualify for federal aid—from the tuition their classmates pay. The regents called for the portion of tuition that now goes to truly needy students to be replaced by contributions from the universities’ fundraising arms.

Similar appeals have come from the governor of Virginia, Arizona legislators, and members of the University of North Carolina Board of Governors.

Since universities are also offering more scholarships to students with high grade-point averages and SAT scores, which elevates them in the all-important U.S. News & World Report college rankings—and since many of those top students come from affluent families and don’t qualify for federal aid—Gillen said another trend is at work. “Rich, dumb kids,” he said, “are subsidizing rich, smart kids.”

Out-of-state students at public universities also are increasingly subsidizing in-state students. That’s because out-of-state tuition is almost always higher than in-state—two and a half times as much for out-of-state than in-state students in the University of California system, for example. At the University of Virginia, out-of-state students pay almost twice what it actually costs to educate them; the rest helps pay for educating everybody else.

Numbers like that are why public universities are aggressively recruiting out-of-state students. About a third of students at the universities of Illinois, Virginia and Washington now come from out of state, and nearly 40 percent at the University of Michigan and the University of Wisconsin-Madison. At U.C. Berkeley, the proportion is nearly 30 percent, about six times what it was as recently as 2006. At UCLA and UCSD, almost one in every five students is from outside California.

So much in demand are out-of-state students that they’re more likely to be accepted for admission to both U.C. Berkeley and UCLA than in-state residents whose parents’ taxes subsidize the universities. The California State University system recently announced that it would not accept in-state graduate students next spring; only out-of-state students, who pay more, are welcome to apply to Cal State graduate-degree programs.

Freshmen and sophomores, meanwhile, whose introductory courses are often taught in large groups in giant lecture halls with help from low-paid teaching assistants, subsidize juniors and seniors, who pay the same tuition but cost from one and a half to two times more to educate, according to a SHEEO survey based on research conducted in Florida, Illinois, New York and Ohio. A member of the faculty at UCLA has separately calculated that the disparity is even greater: Classes averaging 200 students, he found, cost about $56 per student to teach at public universities, compared to $560 per student in classes averaging 20 students. Yet all are charged the same amount.
“The big introductory lectures with 400 students, there’s a lot of profit in that class,” said Gillen. “And that’s used to subsidize smaller seminars for the upperclass students.”

Some of the money also goes to graduate programs that are expensive to operate.

“At the large research universities, the subsidization of graduate students is monstrously large,” Vedder said. “A student in a Ph.D. program sits in seminars of six and eight students taught by a professor making $150,000 a year and gets an extremely costly education. At the same university, the freshman who’s taking Introduction to Psychology, Introduction to Economics, sitting in lectures of 400 people—these kids are paying the same tuition.”

Undergraduates in low-cost disciplines such as the humanities and social sciences also help to pay for students in subjects that cost more to teach, including fine arts, agriculture, law and engineering, the Delta Cost Project on Postsecondary Education reports, since they, too, all pay identical tuition.

A few universities are starting to charge different prices for different fields. At least 143 public universities now levy so-called differential tuition that varies by major and, in some cases, by year of enrollment, the Cornell Higher Education Research Institute found. The University of Maine, for instance, adds a $75 fee for engineering courses, and the University of Kentucky charges an extra $460 per semester for nursing students.

“Most universities sell one product to everyone at the same price, and, in fact, people are doing all kinds of different things at universities,” said Vedder. “So some of them are starting to say, ‘Let’s charge the business students more. Let’s charge the engineering students more.”

Engineering, nursing and the other fields for which universities have started charging extra fees are, of course, precisely the ones into which policymakers are trying to attract more students, said Steven Hurlburt, deputy director of the Delta Cost Project, raising questions about whether these tuition surpluses might discourage students from enrolling in, sticking with or graduating from such programs.
“It would be really interesting to look at the impact of these differential-tuition policies on things like graduation and retention rates,” Hurlburt said.
There are still other largely hidden subsidies in higher education.

At all but the small number of universities whose athletics programs make a profit, students—not broadcast networks or alumni—also subsidize athletics, mostly through mandatory fees­­, although they may not be aware of it.
At Division 1 schools, athletic departments had an average subsidy from student fees of about $3.5 million to $4.2 million, the Center for College Affordability and Productivity found. Yet in a survey at the University of Toledo, only 25 percent of students knew that any of their fees went to athletics. By dividing the athletic fee per student at Ohio University by the number of varsity athletic events the average student reported attending, researchers there determined that each student was paying $130 per game attended.

There’s also pushback against a provision under which students and taxpayers subsidize the cost of tuition for faculty children, spouses and domestic partners—a contentious privilege for full professors who earn median salaries of about $120,000 a year at public universities and just under $140,000 at private ones, or nearly three times the U.S. median household income.

As an international student, Berkeley freshman Howard Chiao pays two and a half times more than in-state students, and is not eligible for university financial aid. In a cycle of cross-subsidization at U.S. universities and colleges, international students subsidize domestic ones. “It’s really a huge burden for us,” Chiao said. (Photo by Michael Short/California Watch)

About a third of public and nearly 82 percent of private universities provide free or reduced tuition to employees and their dependents. Some private universities also have reciprocal arrangements under which employees’ dependents can get free or low tuition at other participating institutions.

A state representative in Pennsylvania has introduced a bill to abolish that benefit at public universities there, where it cost the state $10.1 million in 2010-2011. Lawmakers in Illinois, where it costs about $8 million a year, have also called for eliminating the perk. Defenders of it say it’s an important tool in recruiting top faculty.

Back at U.C. Berkeley, where he’s starting his freshman year, Howard Chiao, who is from Taiwan, already feels like the university takes advantage of international students.

“Sometimes I just feel a little bit like the school is trying to take too much money from us,” Chiao said. “It’s really a huge burden for us.”

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